Inflation is increasingly being underlined as the key risk to derailing the global economic recovery with Prudential chair Shriti Vadera sharing the reminder of its historical relationship with serious political unrest.
«I think the only thing we can be certain about in this coming year is uncertainty,» said Shriti Vadera, chair of British insurer Prudential, during a panel at this week’s Asian Financial Forum 2022.
According to Vadera, there are a number of unprecedented factors that warrant significantly more caution when making forecasts for 2022 and beyond in areas like economics, geopolitics, technology and more.
«So, we should approach predictive outlooks with more humility than usual, not least because none of us are epidemiologists.»
Inflation: Consensus Risk
Inflation was unanimously named by the panel as a top risk for the global economy this year though the impact and subsequent response will vary between economies.
Vadera highlighted, in particular, the uncertainty of what factor will specifically de-anchor inflation expectations be it U.S. and European labor markets, global housing prices, energy prices, food prices or currency depreciation.
Divergent Central Banks
In addition to the direct impact of inflation on the economy, Vadera also noted that subsequent differences in policy responses could create more divergence.
In the case of the U.S., there is the accompanying policy risk of «falling off the right rope» when attempting to balance the two objectives of curbing inflation without jeopardizing the recovery.
Elsewhere, monetary policies could diverge such as in China, where more easing is expected, or in Europe, where heavier debt loads in the southern region could constrain the ECB’s ability to tighten.
«Centuries-Old Link»
But more than just market and policy risk, Vadera stressed that there are very serious real life consequences caused by uncontrolled inflation that have been historically well documented.
«There is a centuries-old link between inflation and political unrest,» she warned. «Squeezing people's cost of living with food and energy price increases can create some very damaging political cycles.»
finews.asia is an official media partner of the Asian Financial Forum 2022.
